Entergy Corp. announced Monday that it plans to spin off its electric transmission business and merge it with ITC Holdings Corp., a Michigan-based transmission company, in a $1.78 billion deal that the New Orleans power provider says will improve the electric grid's efficiency while avoiding substantial capital costs. "I think for our customers, it provides the opportunity for them to improve reliability at a lower cost than otherwise would be if Entergy would be planning financing itself or doing it itself," Entergy chairman and CEO J. Wayne Leonard said in an interview Monday.

Entergy has 15,700 miles of high-voltage transmission lines, covering a 114,000-square-mile area in six regulatory jurisdictions, from swampy delta regions to the mountainous Ozarks. The utility giant spent about $1 billion on transmission upgrades and expansions over the last five years.

If approved by regulators, Entergy expects to complete the transaction by the end of 2013. As part of a tax-free spin-off, Entergy plans to form Mid South TransCo LLC, which will merge with ITC in an all-stock transaction. Entergy shareholders will receive a 50.1 percent stake in the new company, becoming one of the largest electric transmission companies in the country.

On Monday, Standard & Poor's Ratings Services said the Entergy proposal had no near-to-intermediate term effect on ratings and credit quality.

About 750 current Entergy positions will be integrated into ITC, which will open a regional office in Jackson, Miss., where Entergy opened its own transmission headquarters in 2009. Entergy began plotting that move in the wake of Hurricane Katrina in order to limit its exposure in future Gulf storms.

Earlier this month, Entergy New Orleans, an electric and gas utility serving Orleans Parish, filed a formal request with the New Orleans City Council to join a regional transmission organization, the Midwest Independent Transmission System Operator by the end of 2013.

Leonard said Monday that plan has not changed. Entergy Louisiana and Entergy Gulf States Louisiana have also applied with the Louisiana Public Service Commission to join MISO.

While giving Entergy more financial flexibility for making future investments, the deal will also relieve the power provider of an operation that has long become a headache.

For years, Entergy has wrangled with independent power producers in Louisiana over the adequacy and accessibility of its power grid. And last year, Entergy acknowledged that its operations in four states were being investigated by the Justice Department, in a probe involving its power procurement, dispatch and transmission system practices, along with the policies of its subsidiaries.

Leonard on Monday said the criticism coming from merchant power generators contends that Entergy, being in the business of generating, and distributing power, held off on infrastructure upgrades that would open up access of the grid to out-of-reach independent producers, a claim which he dismissed.

"There's a natural suspicion that you're doing something inappropriately to try to increase the value of your generation," he said.

Meanwhile, Leonard expects the spin off will remove that "overhanging of perception of a lack of independence."

"I would hope that they would really support this transaction," he said, "because that has been their criticism, that Entergy is in too many pieces of this."

Richard Thompson can be reached at rthompson@timespicayune.com or 504.826.3496.